MADRID, Oct 30 (Reuters) - Spanish bank BBVA struck a more cautious approach to Turkey for this year and next and said it would need to set aside more money as a result of the worsening economic situation in its fourth-largest market.

Comments made by BBVA executives on Turkey during a conference call on Tuesday drove shares 2 percent lower and overshadowed a strong set of underlying results in its top market of Mexico.

BBVA, which owns just under 50 percent in Turkish Garanti , accounts for around 10 percent of its earnings.

Like Spanish rival Santander, BBVA makes most of its profit overseas, a model that helped it to counter a double-dip recession at home in recent years.

In the third quarter, the cost of ensuring BBVA's loan book in Turkey rose to 172 basis points from 123 points in the previous quarter and BBVA executives said that could rise even further to 230 or 240 basis points in the short to medium term.

"We will probably see very high cost of risks for the whole 2019 and 2018 and we are going to increase the provisioning over the second half of the year," Chief Financial Officer Jaime Sainz de Tejada told analysts.

In Turkey, BBVA's net profit in the quarter dived 40.7 percent after the lira slumped in August.

Overall, net profit at BBVA rose 46 percent to 1.67 billion euros in the third quarter thanks to one-off capital gains in Chile of 633 million euros. Net profit was in line with analysts' forecasts.

Excluding one-off operations, net profit in the quarter would have fallen 9 percent to 1.04 billion euros, also in part due to higher provisions.

The net gain in Chile helped to improve the bank's core tier-1 fully loaded capital ratio - the strictest measure of solvency - by 50 basis points to 11.34 percent at end-September compared with 10.8 percent in June. On an underlying basis, capital was down 6 basis points against the previous quarter.

MARGINS PRESSURED

However as with other European banks, Spanish lenders are struggling to improve their financial margins due to ultra-low interest rates.

Overall, net interest income (NII), a measure of earnings on loans minus deposit costs, was 4.26 billion euros in the third quarter, down 3.3 percent from a year ago and down 2.3 percent from the preceding quarter.

Analysts had forecast a NII of 4.13 billion euros.

In Argentina, where the bank makes less than 5 percent of its operating income, the bank booked a loss of 190 million euros in the quarter after it restated its financial statement to take into account hyperinflation though it also booked a positive impact on equity of 104 million euros.

BBVA reduced its non-performing loans ratio to 4.1 percent compared to 4.4 percent in the second quarter at a moment when the European Central Bank (ECB) is urging lenders to remove toxic assets from its balance sheet.